When deciding between real estate and stocks, the choice depends largely on risk tolerance, investment goals, and current market conditions. Here’s an in-depth look at both asset classes in 2024.

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Real Estate: Stability and Inflation Hedge

Real estate, especially in Canada, has proven to be a reliable long-term investment. Over the past 30 years, Canadian real estate has consistently outperformed inflation, offering an average annual return of about 6.5% since 1990. In 2023, Canadian home prices grew at a rate of approximately 6.8%, despite a downturn in the housing market earlier in the year due to rising interest rates.

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Advantages of Real Estate in 2024

• Tangible Asset: Real estate provides a physical asset that can appreciate over time, especially in markets like Vancouver, Toronto, and the Okanagan, where demand continues to outpace supply.
• Rental Income: For investors, rental properties provide steady cash flow, which is especially attractive during inflationary periods.
• Appreciation Potential: Despite short-term market fluctuations, the long-term trend in Canadian real estate has generally been upwards, with home prices increasing more than 200% from 1990 to 2024 in major cities.
• Tax Advantages: Real estate investors benefit from capital gains exemptions on primary residences and can leverage mortgage interest for tax deductions.

However, real estate also comes with significant barriers such as high upfront costs, illiquidity, and exposure to interest rate changes, which could affect affordability in the short term.

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Stocks: High Returns but Volatility

The stock market, historically, has delivered higher returns than real estate. The S&P/TSX Composite Index has generated a compounded annual return of about 7.8% over the past 30 years. In 2023, Canadian equities delivered an average return of 8%, with technology, energy, and financial sectors showing notable growth.

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Advantages of Stocks in 2024

• High Liquidity: Stocks are easy to buy and sell, offering flexibility for investors looking to move quickly.
• Long-Term Growth: Historically, stocks have outperformed real estate over the long term. For instance, a $10,000 investment in the S&P/TSX Composite Index in 1990 would be worth over $107,000 by 2024, compared to a $60,000 value for the same amount invested in real estate.
• Diversification: Investors can diversify across sectors, regions, and industries, lowering risk exposure compared to real estate, which often depends on local markets.
• Dividends and Compound Interest: Dividend-paying stocks provide an income stream, and reinvesting dividends accelerates growth.

However, stocks can be volatile. While they offer higher returns, they also come with higher risk. The market can experience periods of sharp declines, and 2024's potential economic uncertainties could lead to increased volatility.

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Current Market Conditions

In 2024, the real estate market faces challenges from rising interest rates, which affect mortgage affordability and can lead to slower price growth. The Bank of Canada’s benchmark rate, which currently stands at around 4%, may remain elevated in the short term to combat inflation. This makes housing less affordable, particularly for first-time buyers. However, areas with strong demand, such as Kelowna and other high-demand Canadian cities, may still see price increases, albeit at a slower pace.

On the other hand, the stock market is more susceptible to macroeconomic factors such as global trade tensions, commodity prices, and interest rate hikes. In 2024, the Canadian stock market is expected to experience some volatility, but sectors like technology, renewable energy, and healthcare could perform well.

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What Should You Do in 2024?

For Stability: If you prefer stability, especially during uncertain times, real estate may be the better choice. It’s less volatile and can provide a steady income stream through rental properties. However, the initial capital requirement and the potential for interest rate hikes should be factored in.

For Growth: If your focus is on growth and higher returns, stocks might be the better option. They provide greater liquidity, higher long-term returns, and diversification opportunities, but they also come with more risk.

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Conclusion

Ultimately, the decision to allocate more to real estate or stocks in 2024 depends on your financial situation and goals. A balanced portfolio that includes both real estate and stocks might offer the best of both worlds, ensuring both growth potential and stability. Diversifying across asset classes and regions can help reduce risk while maximizing returns in the long run.

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Investors who are comfortable with the risks associated with stocks may lean more heavily towards equities, while those seeking stability and tangible assets may prefer real estate. Either way, understanding the dynamics of both asset classes in 2024 is crucial to making an informed investment decision.